UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD From ______________ to _____________.
Commission File Number 333-40954
KINSHIP SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0648148
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22 East 100 South, Suite 400
Salt Lake City, Utah 84111
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(Address of principal executive officers)
(801) 521-8636
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), X Yes No; and (2) has been subject to
such filing requirements for the past 90 days: X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock: 1,372,750 shares issued as of October 31, 2001, No Par Value.
Authorized - 50,000,000 common voting shares. The company has only one class of
shares.
INDEX
Kinship Systems, Inc.
For Quarter Ending September 30, 2001
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 2001 (Unaudited) and
December 31, 2000.
Condensed Statements of Operations (Unaudited) - For the three
months ended September 30, 2001 and 2000, for the nine months
ended September 30, 2001, and for the period from February 1,
2000 (Date of Inception) through September 30, 2000 and 2001
Condensed Statements of Cash Flows (Unaudited) - For the nine
months ended September 30, 2001, and for the periods February 1,
2000 (Date of Inception) through September 30, 2000 and 2001
Notes to Condensed Financial Statements (Unaudited) - September
30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I - Financial Information
Item 1. Financial Statements
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements:
Condensed Balance Sheets (Unaudited) - September 30, 2001 and
December 31, 2000 F-1
Condensed Statements of Operations (Unaudited ) for the Three
Months Ended September 30, 2001 and 2000, for the Nine Months
Ended September 30, 2001, and for the Periods from February
1, 2000 (Date of Inception) through September 30, 2000 and 2001 F-2
Condensed Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 30, 2001 and for the Periods from
February 1, 2000 (Date of Inception) through September 30,
2000 and 2001 F-3
Notes to Condensed Financial Statements (Unaudited) F-4
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprises)
CONDENSED BALANCE SHEETS
(Unaudited)
September December
30, 2001 31, 2000
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ASSETS
Current Assets
Cash $ 68,911 $ 10,955
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Total Current Assets 68,911 10,955
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Deferred Offering Costs - 24,907
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Total Assets $ 68,911 $ 35,862
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 247 $ 17,986
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Total Current Liabilities 247 17,986
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Stockholders' Equity
Common stock - no par value; 50,000,000 shares
authorized; 1,372,750 and 1,270,000 shares
issued and outstanding, respectively 98,684 25,813
Deficit accumulated during the development stage (30,020) (7,937)
Total Stockholders' Equity 68,664 17,876
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Total Liabilities and Stockholders' Equity $ 68,911 $ 35,862
========= =========
See accompanying notes to unaudited condensed financial statements.
F-1
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period
For the Nine February 1, 2000
Months (Date of Inception)
Three Months Ended Ended Through
September 30, September 30, September 30,
---------------------- ---------- ----------------------
2001 2000 2001 2000 2001
---------- ---------- ---------- ---------- ----------
Revenue $ - $ - $ - $ - $ -
Selling, general and
administrative expenses 16,327 3,265 23,362 4,337 31,299
---------- ---------- ---------- ---------- ----------
Interest Income 554 - 1,279 - 1,279
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Net Loss $ (15,773) $ (3,265) $ (22,083) $ (4,337) $ (30,020)
========== ========== ========== ========== ==========
Basic and Diluted Loss
Per Share $ (0.01) $ (0.00) $ (0.02) $ (0.00)
========== ========== ========== ==========
Weighted Average Number
of Shares Outstanding 1,372,750 1,270,000 1,327,585 1,270,000
========== ========== ========== ==========
See accompanying notes to unaudited condensed financial statements.
F-2
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
From February 1, 2000
For the Nine (Date of Inception)
Months Ended Through
September 30, September 30,
---------- ----------------------
2001 2000 2001
---------- ---------- ----------
Cash Flows from Operating Activities
Net loss $ (22,083) $ (4,337) $ (30,020)
Adjustments to reconcile net loss to
net cash used by operating activities:
Accounts payable (591) (1,033) 247
Stock issued for services - 813 813
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Net Cash Used by Operating Activities (22,674) (4,557) (28,960)
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Net Cash From Investing Activities - - -
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Cash Flows From Financing Activities
Deferred offering costs (22,120) - (29,879)
Proceeds from issuance of common stock 102,750 25,000 127,750
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Net Cash Provided by Financing
Activities 80,630 25,000 97,871
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Net Increase in Cash and Cash Equivalents 57,956 20,443 68,911
Cash and Cash Equivalents at
Beginning of Period 10,955 - -
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Cash and Cash Equivalents at
End of Period $ 68,911 $ 20,443 $ 68,911
========== ========== ==========
See accompanying notes to unaudited condensed financial statements.
F-3
KINSHIP SYSTEMS, INC.
(A Development Stage Enterprises)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements-The accompanying financial statements are
unaudited. In the opinion of management, all necessary adjustments (which
include only normal recurring adjustments) have been made to present fairly the
financial position, results of operations and cash flows for the periods
presented. Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the Company's financial statements and
notes thereto included in the Form 10-KSB dated December 31, 2000. The results
of operations for the three and nine month periods ended September 30, 2001 are
not necessarily indicative of the operating results to be expected for the full
year.
Basis of Presentation - The accompanying financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. During the nine
months ended September 30, 2001 and the period from February 1, 2000 (date of
inception) through September 30, 2000, the Company incurred net losses of
$22,083 and $4,337, respectively. As of September 30, 2001, the Company has had
no revenues and the accumulated deficit from inception totaled $30,020. The
Company commenced its initial marketing activities during September of 2001,
however, it appears from initial comments received back from various law
enforcement agencies that there has been a general deferral of any discretionary
spending since the tragedy of the September 11, 2001 terrorist attacks. As a
result, Kinship believes that its ability to market in the current environment
may be substantially impaired by the redirection of law enforcement agencies to
homeland security and away from discretionary spending for accident
reconstruction software.
These factors, among others, indicate that the Company may be unable to continue
as a going concern. The accompanying financial statements do not include any
adjustments relating to the carrying amount and classification of recorded
assets or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company
completed its initial public offering on April 30, which raised a net of $72,871
in additional capital. The Company's ability to continue as a going concern is
dependent upon its ability to generate sufficient cash flows to meet its
obligations on a timely basis, to obtain additional financing and ultimately to
attain successful operations. Accordingly, management of Kinship believes its
present focus should be directed to seeking alternative business opportunities.
It will pursue this course by attempting to find suitable opportunities through
development, acquisition or potential mergers.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement with the president to provide a $1,000
stipend per month to him for his services. During June of 2001, the board of
directors voted to modify this agreement to split the $1,000 per month to $500
to the president and $500 to the secretary for their services. For the nine
months ended September 30, 2001, the Company paid $9,000 associated with this
agreement. For services performed previous to the current fiscal year, the four
officers each received 10,000 shares of common stock valued at $0.02 per share
as compensation.
F-4
NOTE 3 - STOCKHOLDERS' EQUITY
On April 30, 2001, the Company closed its initial public offering and issued
102,750 common shares upon receiving cash proceeds of $102,750. Deferred
offering costs in the amount of $29,879 were recognized as a reduction from the
proceeds of the offering.
NOTE 4 - SUBSEQUENT EVENTS
During October of 2001, the Company's management elected to invest in short term
bonds to enhance the return on the cash holdings of the Company.
F-5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are forward-
looking in nature and relate to trends and events that may affect the Company's
future financial position and operating results. Such statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect,""anticipate,""intend," and "project" and
similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results from
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the company, increasing competition, fluctuations in raw materials and energy
prices, and other unanticipated events and conditions. It is not possible to
foresee or identify all such factors. The company makes no commitment to update
any forward-looking statement or to disclose any facts, events, or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
Results of Operations
Kinship was incorporated in Utah on February1, 2000 and has been involved
exclusively to this point in start-up operations including incorporation,
initial organization and an initial public offering ("IPO") of its shares and
which was closed as of April 30, 2001. In this IPO it raised gross proceeds of
$102,750 by selling 102,750 of its common voting shares at $1.00/share to 28
investors, most of whom reside in Utah. The use of proceeds from the IPO are
more particularly described under Part II, Item 2 of this Report.
The accumulated deficit for Kinship during the development stage resulting from
general and administrative costs were $7,937 as of December 31, 2000 and $22,083
as of September 30, 2001. Net losses from inception (2/1/2000) to September 30,
2001 were $30,020.
Kinship has completed, as of mid-September, 2001, its initial marketing
activities by a mass mailing of advertising and description of its products to
law enforcement agencies within several states. Mr. Limpert has also met with
ProSource and TM designs regarding bids and procedures for potential additional
product and marketing activities.
As earlier reported, Kinship anticipated commencing its mass mailing of software
product descriptions earlier in the summer but was unable to do so because of
unforseen delays. It was unable to commence any significant mailing of these
materials until mid-September, 2001. Unfortunately, by the time Kinship had
completed its mass mailing the country had undergone the tragedy of the
September 11, 2001 terrorist attack at the Word Trade Centers and the Pentagon.
While it is not fully determined what impact this event has and will have on
Kinship's economic future, it does appear from initial comments received back
from various law enforcement agencies to whom the software programs were mailed
that there is a general deferral of any discretionary spending which included
spending on Kinship's proprietary software for accident reconstruction. As a
result, Kinship believes that its ability to market in the current environment
may be substantially impaired by the redirection of law enforcement agencies to
homeland security and away from discretionary spending for accident
reconstruction software. Accordingly, management of Kinship believes its present
focus should be directed to seeking alternative business opportunities. It will
pursue this course by attempting to find suitable opportunities through
development, acquisition or potential mergers.
Kinship expended approximately $8,000 of its gross offering proceeds on this
initial mailing effort, or 8%. Approximately 15,000 pieces were mailed to
various law enforcement agencies across the United States with little positive
response. The company must now reconsider expenditure of its remaining offering
proceeds as to this type of product or marketing activity. Presently under
consideration is whether Kinship ought to change its business purpose or
marketing efforts to other types of software programs or consider pursuing
unrelated business activities. All of these matters are presently under
consideration by the Board of Directors and may constitute a significant and
substantial change in business direction for the company as resolved.
Subsequent to September 30, 2001, the remaining net proceeds of the offering,
approximately $68,000, were invested in short term instruments by the company
awaiting a reconsideration of business development and marketing efforts by the
Board of Directors as generally discussed above.
The next periodic filing will contain a continuing review and explanation of the
use of proceeds of the IPO, as well as alternative marketing or business
efforts.
Liquidity and Sources of Capital
As noted above, Kinship has not engaged in business operations to date except to
complete its initial marketing efforts. It raised in its subscription account
$102,750 of gross proceeds. As to these funds, Kinship has accrued and paid
obligations for offering related costs to the accountants, legal counsel as well
as miscellaneous printing and filing costs of approximately $22,120, and the
initial marketing and operating expenses of approximately $11,719, leaving
estimated net operating proceeds to be employed in future business operations of
approximately $68,911.
Kinship is presently determining how to modify its original business plan. With
the remaining net proceeds of its recently completed IPO, it will have limited
options should it determine to develop and market alternative software products
or engage in other business activities as generally outlined above. The company
believes that it has the minimal capital to continue its present operations and
business plan for an estimated 2 -3 months, absent any other major marketing
campaigns. However, no assurance or warranty that the company will continue or
be successful in its marketing efforts can be made or is implied. Further, if
Kinship is not successful in reaching a state of profitability from the use of
the net offering proceeds, there is no presently committed or determined
alternative source or means of financing.
It is possible that Kinship could seek subsequent private placement financing
funds or other means to continue its business operations and/or to develop or
market new products, though no assurance or warranty that funds will be
available or that the company would deem it as feasible or appropriate to seek
such alternative financing can be made if the initial IPO proceeds are not
sufficient to sustain continuing operations.
Part II - Other Information
Item 1. Legal Proceedings
Kinship is not presently engaged in any legal proceedings, nor does it know of
any claims for or against the company by any party which would result in
litigation.
Item 2. Changes in Securities and Use of Proceeds
The company has not had any change in its securities since its last report
filing on Form 10-QSB.
In accordance with SEC Rule 463 the company reports the use of proceeds to date
from its initial public offering "IPO" completed on April 30, 2001:
1. Gross proceeds sold - $102,750.
2. Accrued offering related costs including printing, accounting, legal
and related filing fees - $22,120.
3. Amount expended to September 1, 2001 on marketing and operations -
$11,719.
4. Net proceeds for future operations: $68,911.
Item 4. Submission of Matters to a Vote of Security Holders
During the present quarter there has been no matter submitted to security
holders for a vote. Kinship presently anticipates holding its first annual
shareholders meeting at a date to be designated in the fourth quarter of 2001
for the election of directors and other routine matters, but has not presently
set a definitive date for such meeting. Shareholders will be independently
advised of any such formal annual meeting date.
Item 5. Other Matters
During the recent quarter being reported, management of Kinship was able to
obtain a listing of the company stock on the NASD sponsored Electronic Bulletin
Board under the trading symbol "KSYS." Management was able to obtain an initial
listing support from approximately eight market makers who trade the stock and
provide a market. The range of the stock price for the third quarter was a low
of $1.75/share and a high of $2.75/share.
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
REGISTRANT: KINSHIP SYSTEMS, INC.
Date: November 6, 2001 By: /s/ Terry Deru
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Mr. Terry Deru
President
Date: November 6, 2001 By: /s/ Andrew Limpert
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Mr. Andrew Limpert
Chief Financial and Accounting Officer